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8-K - FORM 8-K - NEXTGEN HEALTHCARE, INC.d664181d8k.htm

Exhibit 99.1

 

LOGO

 

For Further Information, Contact:  
Quality Systems, Inc.   Susan J. Lewis
18111 Von Karman Avenue, Suite 700   Phone: (303) 804-0494
Irvine, CA 92612   slewis@qsii.com
Phone: (949) 255-2600  
Paul Holt, CFO, pholt@qsii.com  

FOR IMMEDIATE RELEASE

       JANUARY 23, 2014

QUALITY SYSTEMS, INC. REPORTS FISCAL 2014 THIRD QUARTER RESULTS

IRVINE, Calif. … January 23, 2014 …Quality Systems, Inc. (NASDAQ:QSII) announced today results for its fiscal 2014 third quarter ended December 31, 2013.

The Company reported revenues of $108.9 million for the third quarter ended December 31, 2013, a decrease of five percent versus $114.5 million reported in the third quarter of fiscal 2013. Net loss for the fiscal 2014 third quarter, partially impacted by the previously announced impairment charge in the Hospital Solutions Division, was $12.6 million versus net income of $15.6 million for the fiscal 2013 third quarter. On a GAAP basis, fully diluted loss per share for the fiscal 2014 third quarter was $0.21 versus earnings per share of $0.26 reported in the comparable quarter a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2014 third quarter was $0.11, a decline of 62 percent from $0.29 for the comparable quarter a year ago (non-GAAP fully diluted earnings per share is reconciled to its corresponding GAAP measure at the end of this release).

The Company’s results reflect the previously announced impairment of certain long-lived assets in its Hospital Solutions Division, which resulted in a non-cash charge of $26.0 million in the quarter. Of this amount, $20.1 million is classified as a component of cost of revenue and the remaining $5.9 million is reflected as a component of total operating expenses. This impairment stems from operating results of the Hospital Solutions Division, which has performed below internal expectations. The Company remains committed to the hospital market and continues to make investments across its Hospital Solutions Division, including in areas such as implementation and training, infrastructure and support, customer service and software development.

During the quarter, bookings continued to improve. The Company also noted it continues to realize growth from its RCM Services Division and its new Mirth Corporation acquisition.

“As we continue to position the Company for growth and improved performance, it is important to recognize that NextGen Healthcare became one of the first electronic health record vendors in the nation to achieve ONC-HIT 2014 Edition Certification as a complete EHR, for both ambulatory and inpatient settings. This certification included meeting criteria for both the transition to ICD-10 and achieving Meaningful Use Stage 2. This is a key milestone as we help prepare our clients for these critical changes and position the Company for future success in the EHR and replacement markets as well as the small hospital arena,” said President and Chief Executive Officer Steven T. Plochocki.

 

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Quality Systems, Inc.

Fiscal 2014 Third Quarter Results

Page 2

 

“While we are disappointed in the performance of late in our Hospital Services Division, we believe in its long-term prospects and to this end, are investing accordingly. With the impairment now behind us, we are encouraged by cross-selling opportunities, particularly as the demand for revenue cycle services increases in light of the fast-approaching ICD-10 deadlines. Additionally, we are gaining traction since our acquisition of Mirth, and its connectivity solutions are paving the way as our healthcare system shifts from fee-for-service to value-based, such as the evolving accountable care organization model. Our breadth and depth make it possible for our clients to succeed in this rapidly changing space,” Plochocki concluded.

Quality Systems also announced that its Board of Directors declared a quarterly cash dividend of Seventeen and One-Half Cents ($0.175) per share on the Company’s outstanding shares of Common Stock, payable to shareholders of record as of March 14, 2014 with an anticipated distribution date of April 4, 2014. The $0.175 per share cash dividend is pursuant to the Company’s current policy to pay a regular quarterly dividend on the Company’s outstanding shares of Common Stock, subject to Board review and approval, and establishment of record and distribution dates by the Board prior to the declaration and payment of each such quarterly dividend.

Quality Systems will host a conference call to discuss its fiscal 2014 third quarter results on Thursday, January 23, 2014 at 10:00 AM ET (7:00 AM PT). All participants should dial 1-866-900-9499 at least ten minutes prior to the start of the call and reference conference ID #34711885. International callers should dial 1-937-502-2136. To hear a live Web simulcast or to listen to the archived webcast following completion of the call, please visit the Company’s website at www.qsii.com, click on the “Investors” tab, then select “Conference Calls,” to access the link to the call. To listen to a telephone replay of the conference call, please dial 800-585-8367 or 404-537-3406 and enter conference ID #34711885. The replay will be available from approximately 1:00 PM ET on Thursday, January 23, 2014, through 11:59 PM ET on Thursday, January 30, 2014.

A transcript of the conference call will be made available on the Company’s website at www.qsii.com.

About Quality Systems, Inc.

Irvine, Calif.-based Quality Systems, Inc. and its NextGen Healthcare subsidiary develop and market computer-based practice management, electronic health records and revenue cycle management applications as well as connectivity products and services for medical and dental group practices and small hospitals. Visit www.qsii.com and www.nextgen.com for additional information.

SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS

This news release may contain forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding future events, developments in the healthcare sector and regulatory framework, the Company’s future performance, as well as management’s expectations, beliefs, intentions, plans, estimates or projections relating to the future (including, without limitation, statements concerning revenue, net income, and earnings per share). Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements and additional risks and uncertainties are set forth in Part I, Item A of our most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2013, including but not limited to: the volume and timing of systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; seasonal patterns of sales and customer buying behavior; impact of incentive payments under The American Recovery and Reinvestment Act on sales and the ability of the Company to meet continued certification requirements; the development by competitors of new or superior technologies; the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; undetected errors or bugs in software; product liability; changing economic, political or regulatory influences in the health-care industry; changes in product-pricing policies; availability of third-party products and components; competitive pressures including product offerings, pricing and promotional activities; the Company’s ability or inability to attract and


Quality Systems, Inc.

Fiscal 2014 Third Quarter Results

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retain qualified personnel; possible regulation of the Company’s software by the U.S. Food and Drug Administration; changes of accounting estimates and assumptions used to prepare the prior periods’ financial statements; and general economic conditions. A significant portion of the Company’s quarterly sales of software product licenses and computer hardware is concluded in the last month of a fiscal quarter, generally with a concentration of such revenues earned in the final ten business days of that month. Due to these and other factors, the Company’s revenues and operating results are very difficult to forecast. A major portion of the Company’s costs and expenses, such as personnel and facilities, are of a fixed nature and, accordingly, a shortfall or decline in quarterly and/or annual revenues typically results in lower profitability or losses. As a result, comparison of the Company’s period-to-period financial performance is not necessarily meaningful and should not be relied upon as an indicator of future performance. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

USE OF NON-GAAP FINANCIAL MEASURES

This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures which are provided only as supplemental information. Investors should consider these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. These non-GAAP measures are not in accordance with or a substitute for, U.S. GAAP. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying financial tables. Other companies may calculate non-GAAP measures differently than Quality Systems, which limits comparability between companies.

The Company believes that its presentation of non-GAAP measures, such as non-GAAP diluted earnings per share and Days Sales Outstanding (“DSO”), provide useful supplemental information to investors and management regarding the Company’s financial condition and results. The Company calculates non-GAAP diluted earnings per share by excluding acquisition costs, amortization of acquired intangible assets, proxy contest expense, and share-based compensation from GAAP income before provision for income taxes. The Company calculates DSO by annualizing (multiplying by four) net revenue for the quarter and then dividing by 365 days to yield an average daily sales amount. The balance of accounts receivable, net of any reserves for bad debts and sales returns, is then divided by that average daily sales amount resulting in the DSO.


QUALITY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended December 31,     Nine Months Ended December 31,  
     2013     2012     2013     2012  

Revenues:

        

Software and hardware

   $ 14,114      $ 21,899      $ 45,648      $ 71,463   

Implementation and training services

     5,046        7,266        19,430        27,847   
  

 

 

   

 

 

   

 

 

   

 

 

 

System sales

     19,160        29,165        65,078        99,310   

Maintenance

     39,763        39,463        118,684        116,746   

Electronic data interchange services

     16,637        15,209        49,874        44,056   

Revenue cycle management and related services

     16,178        15,015        47,660        43,902   

Other services

     17,116        15,658        48,168        44,920   
  

 

 

   

 

 

   

 

 

   

 

 

 

Maintenance, EDI, RCM and other services

     89,694        85,345        264,386        249,624   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     108,854        114,510        329,464        348,934   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

        

Software and hardware*

     27,398        4,660        37,111        16,055   

Implementation and training services

     7,466        7,221        21,572        23,873   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of system sales

     34,864        11,881        58,683        39,928   

Maintenance

     5,642        5,259        16,206        14,811   

Electronic data interchange services

     10,276        9,852        31,722        28,251   

Revenue cycle management and related services

     11,736        10,918        34,144        32,344   

Other services

     8,537        8,686        26,054        26,021   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of maintenance, EDI, RCM and other services

     36,191        34,715        108,126        101,427   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     71,055        46,596        166,809        141,355   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     37,799        67,914        162,655        207,579   

Operating expenses:

        

Selling, general and administrative

     36,864        35,532        110,538        110,045   

Research and development costs

     13,175        7,786        26,404        22,634   

Amortization of acquired intangible assets

     1,219        1,212        3,673        3,665   

Impairment of goodwill and other assets

     5,873        —          5,873        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     57,131        44,530        146,488        136,344   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     (19,332     23,384        16,167        71,235   

Interest income, net

     121        13        (53     (14

Other income (expense), net

     18        (122     (391     (115
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (19,193     23,275        15,723        71,106   

Provision for (benefit of) income taxes

     (6,606     7,649        5,244        24,292   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (12,587   $ 15,626      $ 10,479      $ 46,814   

Net income per share:

        

Basic

   $ (0.21   $ 0.26      $ 0.18      $ 0.79   

Diluted

   $ (0.21   $ 0.26      $ 0.17      $ 0.79   

Weighted-average shares outstanding:

        

Basic

     60,173        59,400        59,823        59,343   

Diluted

     60,173        59,405        59,984        59,411   

Dividends declared per common share

   $ 0.175      $ 0.175      $ 0.525      $ 0.525   

 

* Results for the three and nine months ended December 31, 2013 include $20.1 million in charges related to the impairment of acquired software technology and capitalized software costs in the Hospital Solutions Division


QUALITY SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

(UNAUDITED)

 

     December 31,     March 31,  
     2013     2013  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 82,101      $ 105,999   

Restricted cash

     4,079        5,488   

Marketable securities

     11,888        12,012   

Accounts receivable, net

     126,298        148,257   

Inventories

     928        710   

Income taxes receivable

     15,270        —     

Deferred income taxes, net

     12,181        12,140   

Other current assets

     12,048        12,720   
  

 

 

   

 

 

 

Total current assets

     264,793        297,326   

Equipment and improvements, net

     24,266        21,887   

Capitalized software costs, net

     40,267        39,781   

Intangibles, net

     35,006        27,550   

Goodwill

     72,107        45,761   

Other assets

     11,338        10,750   
  

 

 

   

 

 

 

Total assets

   $ 447,777      $ 443,055   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 4,797      $ 11,501   

Deferred revenue

     72,726        65,207   

Accrued compensation and related benefits

     13,692        11,915   

Income taxes payable

     —          1,480   

Dividends payable

     10,687        10,418   

Other current liabilities

     27,747        26,508   
  

 

 

   

 

 

 

Total current liabilities

     129,649        127,029   

Deferred revenue, net of current

     2,087        1,219   

Deferred compensation

     4,557        3,809   

Other noncurrent liabilities

     11,740        3,949   
  

 

 

   

 

 

 

Total liabilities

     148,033        136,006   

Commitments and contingencies

    

Shareholders’ equity:

    

Common stock

    

$0.01 par value; authorized 100,000 shares; issued and outstanding 60,210 and 59,543 shares at December 31, 2013 and March 31, 2013, respectively

     602        595   

Additional paid-in capital

     193,960        179,743   

Accumulated other comprehensive loss

     (235     (11

Retained earnings

     105,417        126,722   
  

 

 

   

 

 

 

Total shareholders’ equity

     299,744        307,049   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 447,777      $ 443,055   
  

 

 

   

 

 

 


QUALITY SYSTEMS, INC.

NON-GAAP FINANCIAL MEASURES

RECONCILIATION OF NON-GAAP DILUTED NET INCOME PER SHARE

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

     Three Months Ended December 31,      Nine Months Ended December 31,  
     2013     2012      2013      2012  

Income (loss) before provision for income taxes - GAAP

   $ (19,193   $ 23,275       $ 15,723       $ 71,106   

Plus items included in cost of revenue:

          

Amortization of acquired software technology

     1,060        672         2,668         2,029   

Impairment of other assets*

     20,098        —           20,098         —     

Share-based compensation

     90        52         253         201   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total adjustments to cost of revenue

     21,248        724         23,019         2,230   

Plus items included in operating expenses:

          

Acquisition costs

     108        357         602         1,582   

Amortization of acquired intangible assets

     1,219        1,212         3,673         3,665   

Impairment of goodwill and other assets

     5,873        —           5,873         —     

Proxy contest expense

     —          —           1,721         1,250   

Share-based compensation

     617        531         1,579         1,765   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total adjustments to operating expenses

     7,817        2,100         13,448         8,262   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total adjustments to GAAP income before provision for income taxes:

     29,065        2,824         36,467         10,492   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income before provision for income taxes - Non-GAAP

     9,872        26,099         52,190         81,598   

Provision for income taxes

     3,141        8,613         17,518         27,976   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income - Non-GAAP

   $ 6,731      $ 17,486       $ 34,672       $ 53,622   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted net income per share - Non-GAAP

   $ 0.11      $ 0.29       $ 0.58       $ 0.90   

 

* Relates to the impairment of acquired software technology and capitalized software costs in the Hospital Solutions Division

RECONCILIATION OF DAYS SALES OUTSTANDING CALCULATION

(IN THOUSANDS, EXCEPT NUMBER OF DAYS)

 

          December 31,  
          2013  

Quarterly Revenue

      $ 108,854   

Times four (4)

   ×      4   
     

 

 

 

Equals Annualized Revenue

        435,416   

Divided by 365 days

   ÷      365   
     

 

 

 

Equals Average Daily Revenue

   =    $ 1,193   
     

 

 

 

Net Accounts Receivable

      $ 126,298   

Divided by Average Daily Revenue

   ÷      1,193   
     

 

 

 

Equals Days Sales Outstanding

   =      106   
     

 

 

 

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